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Mapping Out an Emerging Market Investment Strategy

By U.S. News & World Report

The wisdom of investing in emerging market equities has been challenged by recent global events, including the sharp decline in China’s growth, political and economic uncertainty in Brazil and last summer’s Greek fiasco. So, are emerging market equities still a suitable core strategic asset class for investors?

Depending on one’s world view, these equities may still make sense for diversified long-term portfolios. But it is essential to take the high-growth/high-risk nature of EM assets into account when making any investment decision.

Despite their high-performance reputation, emerging markets actually underperformed traditional asset classes over the past quarter century. From 1990 to the present, the Standard & Poor’s 500 index’s annual average total return was 9.2 percent, beating the 7.9 percent return for the MSCI Emerging Markets index. Of course, there have been periods over the last 25 years when EM stocks have done very well. Nonetheless, prudent investors should think carefully before adding EM exposure to their portfolios.

Investors need to understand the inherent risks in EM exposure. Geopolitical shifts and local instability can drive sweeping changes in the economic outlook for a country or an entire region, and currency fluctuations pose another major risk.

Developed markets are hardly immune to disruptive events and down cycles, of course. Think of the collapse of Long-Term Capital Management in 1998, the bursting of the tech bubble in the early 2000s, or the Great Recession of 2008-09. But developed markets are fairly diversified and resilient, and tend to bounce back from adversity more quickly than emerging markets.

Beware of falling BRICs. The notion that global economic dynamism had shifted to the emerging markets was embodied in the “BRICs” concept, popularized by Jim O’Neill of Goldman Sachs in 2001. The tremendous growth in the economic power of China in particular, and to a lesser extent Brazil, Russia, India and other nations such as South Africa, led the EM asset class to vastly outperform just about everything else in the mid-2000s.

Despite significant economic progress, many EM “growth engines” now seem to be running out of fuel. Brazil and Russia are experiencing sharp reversals, South Africa and Turkey are struggling to find a path back to prosperity, and China’s troubles are well-documented. These and other challenges are reflected in the uninspired performance of EM equities since 2010.

That said, emerging markets cannot be completely dismissed as a strategic asset class. Many emerging markets are more stable today, due to economic and financial system reforms, strengthened foreign exchange reserves, or better management of debt. A number of countries are substantially wealthier than they were in the 1990s, and are making investments in infrastructure to support more sustainable economic progress and better lives for their citizens.

Emerging markets are not created equal. India, for example, is a vastly different market from Southeast Asian countries, with different prospects and risks. This matters because indexing emerging markets is trickier than indexing something like the S&P 500. Within an EM index are multiple country exposures, and one should understand the inherent risks.

We recommend a broad EM exposure versus a targeted bet on a particular region or country. This can be accomplished through exchange-traded funds that track emerging market equities, such as the iShares MSCI Emerging Markets Mini Vol (ticker: EEMV), iShares Core MSCI Emerging Markets (IEMG), or SPDR S&P Emerging Markets (GMM). Such ETFs offer exposure to potential EM growth, while allowing investors to spread risks across a range of markets and companies.

Ultimately, deciding whether to invest in emerging markets depends on one’s view of global growth. If economies grow and consumerism spreads, EM investors have an opportunity to share in that growth. We think expectations of EM growth near 10 percent are unreasonable, and are not supported by the evidence of the last 25 years.

Yet, there are profits to be had in new markets. Even if China’s growth slows to 4 percent, that is still better than much of the developed world. EM demand is still driving growth at many global companies: Nike (NKE) reported 20 percent sales growth in China last quarter.

Investors who believe in world growth can position their portfolios accordingly — by taking a long-term strategic approach to EM allocation, understanding the high-risk/high-return nature of the class, and making smart, broadly diversified EM bets.

As of this writing, MV Financial owns and uses EEMV and IEMG in client portfolios. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MV Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from MV Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MV Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the article content should be construed as legal or accounting advice. A copy of the MV Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

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Mapping Out an Emerging Market Investment Strategy originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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